AS the Modi government completes 12 years in power, it provides us with a vantage point from which to assess his economic performance.
The latest set of numbers is flattering, with GDP growth in 2025-26 coming in at 7.7%, and the last quarter of the fiscal year giving 7.8% despite the fact that this quarter (January-March 2026) included one month of the West Asian conflict’s disruptions. One could conclude that the government’s management of the economy has been very good in a difficult year, which saw other disruptions, too — Operation Sindoor, effects of the Ukraine war, the US tariff challenge and the weaponisation of China’s rare earths monopoly, etc.
A brief history of the economic environment during 2014-26 is useful here. The Modi government faced two back-to-back monsoon failures in 2014-15 and 2015-16, but it compounded this problem by introducing its own disruption: demonetisation. By 2018, just a year before the General Elections, the government was faced with a loss of business confidence. Modi began correcting this image and in 2019, after re-election, he offered one of the largest corporate tax cuts for India Inc. But it was badly timed, for in 2020, we got the Galwan clashes and Covid, and the economy went into a tailspin, from which it recovered over the next three years. But after 2024, the Trump tariffs and the Gulf war undermined growth prospects and India was late to take up the AI challenge. Both the markets and the rupee tanked.
On the other hand, it is difficult to recall any government doing more reforms on a consistent basis after 1991. The UPA did practically no reform, but Modi ensured that reforms remained on track — from cleaning up the subsidy delivery system to legislating the insolvency code. In 2017 and the next few years, bank and corporate balance sheets were cleaned up. At no other time has the country invested so much in infrastructure, including roads, airports, seaports, defence or digital infoways.
Modinomics is not a static ideology. It has been reworked to fit economic and political realities. It is clear that Modi as PM has been different from Modi as Gujarat CM. For example, when he was CM and a likely candidate for PM, Modi famously said that the government had no business being in business. He also said that his approach was “minimum government, maximum governance". From this, many observers concluded that Modi was some Indian version of Margaret Thatcher or Ronald Reagan, who would restrain government expansion and privatise state-owned businesses. Modi also indicated that he preferred empowerment over entitlement, implying that his government would try to help people help themselves and not make freebies an ever-expanding welfare entitlement based on ‘rights’.
Not only has very little privatisation been done (Air India is an exception), but the role of government in many sectors has increased. State-owned banks were rescued by massive injections of government equity. Plans to privatise companies as diverse as Bharat Petroleum, Concor, Shipping Corporation and IDBI Bank were drawn up and then quietly scuttled or delayed. Far from cutting freebies, once it was realised that these were essential to winning elections, the BJP embraced the idea with gusto even though Modi has often rallied against ‘revdis’.
On the other hand, Modi’s essential fiscal conservatism was crucial to India’s economic revival after Covid. He did not spend like crazy on expanding entitlements — despite the recommendations of many renowned economists — and the net result is India’s central finances are in a better shape now than they would have been if he had followed the advice of experts.
Modi used the fall in crude prices after 2014-15 to tax petro-goods and repair the broken finances left behind by the UPA government. He also used his first term to reform the subsidy system (direct benefit transfers using Jan Dhan-Aadhaar-Mobile) and forced loan defaulters to repay loans at the insolvency courts. For the first time in India’s history, defaulters were not spared.
During his first term, when Modi was out to prove that he was tough on corruption and black money, there was a visible slide in business confidence. Two voluntary disclosure schemes for foreign and domestic black money were announced in 2015 and 2016, but they drew a limited response as the penal tax rates were too high. A law to prevent benami transactions in property was operationalised.
In 2016-end, we got demonetisation, which came as a massive blow to the cash-based economy. While one of its unintended side benefits was a quicker transition to the digital economy (UPI is the preferred mode for lower value transactions), there is little doubt that many small and medium enterprises continue to struggle.
As the 2019 elections loomed, Modi reversed course on doling out freebies and started the PM Kisan Samman Nidhi payments to farmers (Rs 2,000 every four months). Before that, state governments were given a wink-and-a-nod to offer freebies of their own, and UP and Maharashtra offered farm loan waivers. Now, of course, they are part of every election. The withdrawal of the three farm reform laws, which were opposed by rich farmers also punctured his zeal for big-ticket reforms that could upset large segments of voters.
Now, the focus is on reforms that are incremental in nature, like steady deregulation, implementing labour codes and incentivisation of manufacturing through the Production Linked Incentive (PLI) scheme. This scheme has been widely successful in electronics, where Apple has been the leading performer. It is now the preferred way of enticing investment in the private sector.
As for jobs, this is where the Modi government faces a big challenge. While it has been successful in formalising jobs (as the growth in provident fund accounts shows), automation and artificial intelligence are likely to dent middle-skill jobs in the most employment-generating businesses: software services, banking and finance, telecom and manufacturing. The real job growth has occurred in platform work (Swiggy, Zomato, Uber) and retail and logistics sectors which employ low-cost labour.
With freebies eating up the revenue outlays, the government’s ability to create jobs in the state sector has declined both at the Centre and in states.
Modi has been realistic on jobs, though he won’t admit it. He has realised that jobs won’t happen easily in the organised sector, which can automate and produce the same output with fewer workers, and that future growth will come from smaller enterprises, self-employment and start-ups. While startups conjure up the image of young educated people using technology in cutting-edge areas, it also includes subsistence-level self-employment for the vast millions (the “pakora" seller). Which is why Modi, even in his first term, emphasised Mudra loans to promote self-employment. It is easy to make fun of this, but it is better than pretending that everyone can get a cushy, regular job.
Modinomics has evolved in the face of economic and political challenges from the Prime Minister’s original hopes to something more realistic — and that is not a criticism. The truth is no other party has any better ideas for improving the country’s economic future. That is what keeps Modi ahead of his political rivals.
Incremental change and small, regular reforms by stealth are the road ahead. Clearly, the Modi government does not want wholesale disruption and political turmoil. Modinomics is about balancing economic change with the need to ensure political longevity.
